Energy sector set to review power purchase agreement

The Energy Regulatory Authority has commissioned a study to review the current Power Purchase Agreement (PPA) from the current US dollar denomination to the Kenya shilling, a move that is expected to boost local financing, leading to reduced power costs to consumers.

Currently, Kenyans are forced to shoulder high power tariffs to repay mostly foreign investors who pumped money in the sector when the shilling was more stable against the dollar.

Monthly electricity data on the Stima Regulus Web, a tool that allow consumers in Kenya to calculate current and historic electricity costs for instance show that the total cost of energy per kilo watt has increased from Sh14.13 in June 2010 to Sh20.48 charged last month.

The Foreign Exchange Rate Fluctuation Adjustment fee has increased from Sh0.83 per kilo watt to Sh1.08 witnessed last month. This is because the shilling has depreciated by 28 units from 2010 when it was trading at Sh75.26 to Sh103.85 last month.

Most of this investments were done when the dollar was trading at Sh78-85. Yesterday, the dollar was buying at Sh103.8, selling at Sh104.

Energy Permanent Secretary Eng. Joseph Njoroge who commissioned the study said that the initiation of local currency in the PPA is part of the government’s ‘buy Kenya, build Kenya’ initiative to encourage locals to participate in long term infrastructure financing that attracts high returns on investments.

“One of the key challenges facing the energy sector is lack of appropriate and affordable financing option and attractive incentives to mobilize investments in energy infrastructure. This study will help unlock the potential of the sector while reducing the cost for the end consumer,’’ said ERC acting director General Pavel Robert Oimeke. He added that the current investors will not be affected in case the study findings become operational.

The three month study is funded by the technical assistance facility of the Private infrastructure Development Group to the tune of Sh20 million and it will be implemented by GuarantCo, a firm established to support the development of local financial markets in low income countries.

GuarantCo’s Executive Director, Samuel Chasia said local currency financing involves productive recycling of savings within a country rather than increasing the country’s external debt burden.

“Any reduction in the consumer tariff will translate into more affordable power and deliver a sustainable advantage to consumers including businesses and industries in Kenya, particularly in the manufacturing sector, creating more employment and contributing to the growth of the economy,’’ said Chasia.

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